The Shape of Twentieth Century Economic History


Copyright 1991-2000 J. Bradford DeLong

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J. Bradford DeLong
Department of Economics, U.C. Berkeley, #3880
Berkeley, CA, 94720-3880
(510) 643-4027 phone; (510) 642-6615 fax

The Shape of Twentieth Century Economic History


Copyright 1991-2000 J. Bradford DeLong

5,350 words




A. The millennial perspective

A thousand years from now the history that we know will have long since been boiled down to its bones. A thousand years hence history courses will spend as much time on the history of the twentieth century as we spend on the history of the tenth. Surveys will have at most one single two-hour session to spend on the entire twentieth century. In that one single session teachers will try to teach their students five ideas, and leave them with one single image.

The five ideas are:

These five ideas are the five themes of this book.

And the one image teachers a millennium hence will try to leave with their students? Teachers will have no doubt that over the twentieth century taken as a whole humanity had made progress. And they will be right. The world today is closer to being a truly human world than it was back in the late nineteenth century. Today life expectancy at birth is some 67 years. Back in the late nineteenth century life expectancy at birth was under 40 years. Today only six percent of people die in their first year of life; back in the late nineteenth century roughly a quarter of all babies died. Today more than four-fifths of adults can read and write; back in the late nineteenth century only one-quarter of adults could read and write.

But this progress was accompanied by terror and death. Large chunks of the century were the greatest abattoirs ever seen. The progress towards utopia--toward a truly human world--cannot be described as a climb, or a sprint, or even a walk. Instead, the irresistible image is that of Yeats's rough beast slouching towards Bethlehem. The twentieth century was not what anyone had hoped that we would see. Humanity is closer to having material abundance than ever before. But will what happened along the way permanently mar our civilization? The roughness and brutality of our slouching progress towards utopia makes us wonder if we will get there. Material abundance and productive power are necessary, but not sufficient.

Each of these five themes deserves restatement at greater length:



1. Twentieth Century History Was Economic History

In most centuries up until now the core of human history--the most interesting and significant parts--has at best a tangential relation to economic factors. The core of history is, instead, intellectual or religious or political. A history of the seventh or of the sixteenth centuries in western Eurasia and northern Africa must be primarily a religious history. The story of Muhammad and the origin and spread of Islam must be the main thread of the narrative written anyone who wants to tell the seventh-century story as it really happened, just as the Protestant Reformation and the fracture of western Europe's church into warring factions must be the main thread of the sixteenth-century story in western Eurasia. The history of the fifteenth century is primarily cultural: in Europe the Renaissance, in China the cultural flourishing during the Ming Dynasty. The history of the late eighteenth and early nineteenth centuries must be primarily political: the American and French Revolutions and their consequences.

In the past the core of history has been only tangentially related to economic factors because economic factors changed only slowly. The structure and functioning of the economy at the end of any given century was pretty close to what it had been at the beginning. The economy was more the background against which the action of a play takes place than a dynamic foreground character. Changes in humanity's economy--how people made, distributed, and consumed the material necessities and conveniences of their lives--required long exposures to become visible. By contrast religions, political systems, elite cultural configurations, and other aspects of history moved faster and further. The religious, cultural, and political lives of Lorenzo di Medici "Il Magnifico" in the fifteenth century were very different from the religious, cultural, and political lives of the lords of Etruscan Fiesole two thousand years before. The material life and living standards of Etruscan and Renaissance peasants were much more similar.

But in the twentieth century things were very different. Then--and now--it is the economy that changes rapidly and fundamentally--while politics, culture, and religion exhibit more continuity.

In the twentieth century the pace of economic change was so great as to shake the rest of history to its foundation. For perhaps the first time the making and using the necessities and conveniences of daily life--and how production, distribution, and consumption changed--was the driving force behind a single century’s history.


[Picture: left–the harvest in Sicily, circa 1880; right–the harvest in Canada, circa 1998]



2. The Twentieth Century Has Seen Wealth Explode

There had been much technological progress before the industrial revolution, before the eighteenth and nineteenth century age of the spinning jenny, power loom, steam engine, coal mine, and iron works. The windmills, dikes, fields, crops, and animals of Holland in 1700 made its economy very, very different indeed from that of those who had lived in the same marshes back in 700; the ships that docked at the Chinese port of Canton had much greater range and the commodities loaded on and off them had much greater value in 1700 than in 700. But pre-industrial technological progress led to little improvement in the standard of living of the average human: improvements in technology and productive power by and large raised the numbers of the human race, not its material standard of living.

The eighteenth and nineteenth centuries saw a faster change and a different kind of change. For the first time technological capability outran population growth and natural resource scarcity. By the last quarter of the nineteenth century the average inhabitant of a leading economies–a Briton, a Belgian, a Netherlander, an American, a Canadian, or an Australian–had perhaps three times the material wealth and standard of living of the typical inhabitant of a pre-industrial economy. The standards of living of the bulk of the population underwent a substantial, sustained, and unreversed rise in the eighteenth and nineteenth centuries–for perhaps the first time in a thousand, if not in seven thousand years.

And material standards of living and levels of economic productivity have exploded in the twentieth century.


[Picture: left–working-class kitchen, circa 1880; right–working-class kitchen, circa 1998]


What took a worker in 1890 an hour to produce takes an a worker in a leading economy today only about seven minutes to produce: by this measure we today have some eight times the material prosperity of our counterparts of a little more than a century ago. But such calculations substantially understate the boost to productivity and material prosperity that the past century has seen. We today are not just better at making the goods of a century ago. We today also have the new and powerful technological capability to make an enormously expanded range of goods and services: from videocassettes and antibiotics to airplane flights and plastic bottles.


[Picture: left–factory floor, circa 1880; right–factory floor, circa 1998]


We today would feel–we would be–enormously impoverished if by some mischance our money incomes and the prices of commodities remained the same, but if we were at the same time forbidden to use any commodity not produced in 1890.

This expansion in the range of what we can produce is an enormous additional multiplier of material well-being. Are we sixteen? thirty-two? sixty-four times as rich in a material sense as our predecessors in today’s developed industrialized democracies were toward the end of the nineteenth century? The magnitude of the growth in material wealth has been so great as to make it nearly impossible to measure.

This is the most important piece of the history of the twentieth century. As far as its ability to produce material goods is concerned, in the twentieth century the human race has passed through and left the realm of necessity–where providing basic food, clothing, and shelter took up the lion’s share of economic productive potential. We have emerged into the realm of freedom: in which our collective production is no longer made up largely of the necessities of survival but of conveniences and luxuries.



3. Twentieth Century Tyrannies Were More Brutal

In the twentieth century governments and their soldiers have killed perhaps forty million people in war: either soldiers (most of them unlucky enough to have been drafted into the mass armies of the twentieth century) or civilians killed in the course of what could be called military operations.

But wars caused less than a third of the twentieth century’s violent death toll.

Governments and their police have killed perhaps eighty million, perhaps one hundred and sixty million people in time of peace. Class enemies, race enemies, political enemies, economic enemies, imagined enemies have all been slaughtered. You name them, governments have killed them. And governments have killed them on a scale that could not previously have been imagined. If the twentieth century has seen the growth of material wealth on a previously-inconceivable scale, it has also seen human slaughter at a previously-unimaginable rate.


[Picture: left–Nuremberg rally, 1934; right–Tien an Men Square]


Call those political leaders whose followers and supporters have slaughtered more than ten million of their fellow humans "members of the Ten-Million Club." All pre-twentieth century history may (but may not) have seen two members of the Ten-Million Club: Genghis Khan, ruler of the twelfth century Mongols, launcher of bloody invasions of Central Asia and China, and founder of China's Yuan Dynasty; and Hong Xiuquan, the mid-nineteenth-century Chinese intellectual whose visions convinced him that he was Jesus Christ’s younger brother and who launched the Taiping Rebellion that turned south-central China into a slaughterhouse for decades in the middle of the nineteenth century. Others do not make the list. Napoleon does not make it, and neither does Alexander the Great or Julius Caesar.

By contrast the twentieth century has seen perhaps five people join the Ten Million Club: Adolf Hitler, Chiang Kaishek, Vladimir Lenin, Joseph Stalin, and Mao Zedong. Hitler, Stalin, and Mao have credentials that may well make them the charter members of the Thirty Million Club as well–perhaps the Fifty Million Club. A regime whose hands are as bloody as those of the Suharto regime in Indonesia–with perhaps 450,000 communists, suspected communists, and others in the wrong place at the wrong time dead at its creation in 1965, and perhaps 150,000 inhabitants of East Timor dead since the Indonesian annexation in the mid-1970s–barely makes the twentieth century's top twenty list of civilian-massacring regimes.


[Picture: Rogue’s Gallery: Political Leaders Who Have Presided Over the Twentieth Century’s Biggest Massacres: Hitler, Stalin, Mao, Chiang Kai-Shek, and Admiral Tojo]


What does this–bloody–political and secret police history have to do with economic history? It seems at first glance that, while deplorable, it has little to do with the story of how people produced, distributed, and consumed the commodities needed and desired for their material well-being.

But it is not possible to write economic history without taking the bloody hands of twentieth century governments into account. First, the possibility that the secret police will knock at your door and drag you off for torture and death is a serious threat to your material well-being. The seventeenth-century political philosopher Thomas Hobbes wrote that people are motivated by sticks and carrots: "the fear of violent death, and the desire for commodious living." In a century where the chance that a randomly-selected person will be shot or starved to death by his or her own government approaches two percent, the fact of large-scale political murder becomes a very important aspect of everyday life and material well being.

Second, the shooting or starvation was often part of the government’s "management" of its economy: the stick used to compel the people to perform service or labor as the government wished. The economies of the Soviet Union in the 1930s and of China in the 1960s cannot be understood without understanding how mass terror was used as a worker discipline device.

Third, the twentieth century is unique in that its wars, purges, massacres, and executions have been largely the result of economic ideologies. Before the twentieth century people slaughtered each other for the other reasons. People slaughtered each other over theology: eternal paradise or damnation. People slaughtered each other over power: who gets to be top dog, and to command the material resources of society. But only in the twentieth century have people killed each other on a large scale in disputes over the economic organization of society.

When you think about it, killing people on a large scale over what social mechanisms should coordinate economic activity is profoundly stupid: we want social mechanisms that will work in the sense of delivering prosperity, progress, and a reasonably egalitarian distribution of income. Combinations of mechanisms that fail to accomplish this should be rejected; combinations that succeed should be approved; but the stakes are not large enough to justify large scale massacre.

The power of tyrants and leaders does not depend on the balance of command or market mechanisms in the economies that they govern. Fidel Castro would rule in Havana whether farmers are allowed to sell their crops in roadside stands, or whether they are prohibited from doing so–forced to sell to government monopoly bureaucracies. The power or personal status of leaders or the eternal salvation of peoples had little to do with twentieth century episodes as the Soviet collectivization of agriculture, the Cuban suppression of farmers' markets, the Khmer Rouge's forced emptying of Cambodia’s cities, or the disaster of Mao’s Great Leap Forward. All were in large part attempts to guide and shift the economy along the lines dictated by ideology.

Other twentieth century disasters had equally strong roots in economic ideology: it is hard to see World War II in the absence of Adolf Hitler's insane idee fixe that the Germans needed a better land-labor ratio–more "living space"–if they were to be a strong nation.

The last word should be Aleksandr Solzhenitsyn’s: "The imagination and inner force of Shakespeare's villains stopped short at ten or so cadavers, because they had no ideology.... It is thanks to ideology that it fell to the lot of the twentieth century to experience villainy on the scale of millions."



4. The Economic Gulf Between Nations Has Yawned Wide

Those economies relatively rich at the start of the twentieth century have by and large seen their material wealth and prosperity explode. Those nations and economies that were relatively poor have grown richer, but for the most part slowly. The relative gulf between rich and poor economies has grown steadily over the past century. Today it is larger than at any time in humanity’s previous experience, or at least larger than at any time since only some tribes knew how to use fire.


[Figure: left–street scene, Calcutta, circa 1998; right–street scene, Silicon Valley, circa 1998]


This glass can be viewed either as half empty or as half full. It is half empty because we live today in the most unequal world ever. It is half full because most of the world has already made the transition to sustained economic growth; most people live in economies that (while far poorer than the leading-edge post-industrial nations of the world’s economic core) have successfully climbed onto the escalator of economic growth and thus the escalator to modernity. The economic transformation of most of the world is less than a century behind the of the leading-edge economies–only an eyeblink behind, at least from the millennial perspective (even though the millennial perspective is one that human beings can adopt only when contemplating the long-dead past).

On the other hand, one and a half billion people live in economies that have not made the transition to economic growth, and have not climbed onto the escalator to modernity. It is hard to argue that the median inhabitant of Africa has a higher real income than his or her counterpart of a generation ago.

From an economist’s point of view, the existence, persistence, and increasing size of large gaps in productivity levels and living standards across nations seems bizarre. We can understand why pre-industrial civilizations had different levels of technology and prosperity: they had different exploitable nature resources, and the diffusion of new ideas from civilization to civilization could be very slow. Such explanations do not apply to the world today.

The source of the material prosperity seen today in leading-edge economies is no secret: it is the storehouse of technological capabilities that have been invented since the beginning of the industrial revolution. This storehouse is no one’s private property. Most of it is accessible to anyone who can read. Almost all of the rest is accessible to anyone who can obtain an M.S. in Engineering.

Because of modern telecommunications, ideas today spread at the speed of light. Governments, entrepreneurs, and individuals in poor economies should be straining every muscle–should in fact have long ago strained every muscle–to do what Japan began to do in the mid-nineteenth century: acquire and apply everything in humanity's storehouse of technological capabilities.

This "divergence" in living standards and productivity levels is another key aspect of twentieth century economic history: economies are, by almost every measure, less alike today than a century ago in spite of a century’s worth of revolutions in transportation and communication.

Moreover, there seems to be every reason to fear that this "divergence" in living standards and productivity levels will continue to grow in the future. A number of factors have kept economic growth slow in today’s poor countries in the past: high rates of population growth that restrict growth in the capital-output ratio, high relative prices of capital goods that constrain investment, governments that (like most governments throughout history) take the short view in an attempt to maximize chances of survival and the perquisites of office, and traditional elites (religious and cultural) that fear what they will lose from a richer country more integrated into the twenty-first century world. These factors are still operating today, and likely to operate in the future as well.

This is a potential source of great danger, because today’s world is sufficiently interdependent–politically, militarily, ecologically–that the passage to a truly human world requires that we all get there at roughly the same time.



5. Political Management of Economic Life Has Been Inept

The twentieth century has seen the century-long economic disaster of communism, and the quarter-century-long disaster of fascism. It has also seen many governments that appear singularly inept at managing market economies: inept at coping with economic shocks that threaten to cause mass unemployment or raging hyperinflation. Some of it is because twentieth century economists did not know what to prescribe: the history of economic policy reads like alchemy, not chemistry. Often proposed remedies made economic problems worse.


[Picture: Crowds outside the New York Stock Exchange during the Crash of 1929]


Some of it is that politicians did not like to follow their economists’ advice, or at least sought for a more complaisant set of economists who would give advice that would be more politically pleasing and palatable to follow. Some of it is that those who do not remember the past are condemned to repeat it–and the rest of us are condemned to repeat it with them.

The twentieth century economy has been a tremendously powerful, efficient, and productive social mechanism–the market system. Yet few, or few of those in power, have known how to operate or fix it. Moreover, learning does not appear to take place–or if it does take place, it does not take place at more than a glacial pace. The inescapable image is of an ocean liner crewed and steered by chimpanzees.

The failures and half-successes of economic policy together make up another key facet of twentieth century economic history: how governments have managed or mismanaged their economies, and how knowledge of how the economic system works has been painfully gained and then painfully lost.



B. Organization

1. Other Themes

There are other themes as well: shifts in the distribution of relative wealth and economic power from rich to middle-class and back again, as the wave of social democracy sloshes across the industrial economies in the twentieth century; the Great Depression, the defining moment of twentieth century economic history; the rise to economic preeminence of the United States; and forthcoming challenges to America’s role at the leading technological and econo-cultural edge as "the furnace where the future is being forged.".

All these other themes are important strands in twentieth century economic history. But from the perspective of a millennium, the most important aspects of twentieth century economic history cannot help but be those five sketched above: the dominance of economic events in twentieth century history; the tremendous surge of material prosperity; the coupling of productive power and economic ideology with mass murder; the bizarrely uneven distribution of economic growth and prosperity around the world; and the failure of economic policy to advance from the stage of alchemy to chemistry.





2. Structure of the book

The first part of this book tries to take such a millennial perspective: a chapter on each of the principal themes of the economic history of the twentieth century.

Only afterwards do I drop back into narrative. The narrative begins by trying to paint a picture of the state and trajectory of the world economy at the end of the nineteenth century. It skates briefly over developments up through World War I, focusing on how the first truly global economy of the pre-World War I period–the first economy in which transport costs were low enough for trade to have a powerful impact on every portion of the globe–functioned. It then turns to the attempts to rebuild and reorganize the world economy in the aftermath of World War I, and their catastrophic failure. It traces the causes, progress, and consequences–economic and political–of the disaster that was the Great Depression.

The narrative then briefly treats the economic consequences of World War II before marveling at the job of reconstruction done in the aftermath of Adolf Hitler’s war. It continues to marvel at the pace of the subsequent Great Keynesian Boom of the generation after World War II. It then focuses on the more troubled economic period since 1973 or so. And, last, it peers dimly into the future of the human economy.





3. Focus

This is a history of the global economy in the twentieth century: of the events and processes of the network of trade, investment, and communication that spanned the globe at the start of the twentieth century. Thus the focus throughout is on the industrial core: the rich nations, originally grouped around the North Atlantic Ocean, that have been at the leading edge of economic development, structural change, and technological advance in this century. These are the economies that traded, invested, and communicated the most. This is what I know best, and am more than half-qualified to write about. But I hope that I have paid due attention to the economic history of the rest of the world as it became increasingly enmeshed in the global economy throughout the twentieth century.

The level of analysis attempts to be neither "history from above" nor "history from below" but rather "history from beside."

"History from above" tells of the doings of kings, princes, and general secretaries in marble-floored buildings and green silk-covered rooms. "History from below" tells of what ordinary people ate and wore and thought.

Neither is adequate.

The focus on the Duke of This or the Earl of That found in "history from above" is a trivially small part of the history. How did people try to get enough to eat? Were people well enough nourished for young women to easily reach puberty? How did patterns of daily life change? The answers to these questions tell us more about the history, and are intrinsically at least as interesting, as are stories of assassinations and intrigue at the courts of Tiberius Claudius Nero Caesar Germanicus (the Roman Emperor Claudius) or of Josef Vissarionovich Djugashvili (the Soviet General Secretary Stalin). In the long run menarche–whether the people are well-enough nourished for women to go through puberty at an early age–is more important to know about than monarchy. How billions of people lived and live their lives is more important than the maneuvers and problems of the few who sit at the very top of the pyramids of human social organization. The difficulties created by the affair of the Chancellor with the Queen Mother are less important–with the proviso that at many times and places the history of monarchy had had important implications for the average age at menarche.

But the patterns of daily life of the general population and how they change make little sense if they are divorced from any consideration of high politics and changing technology. For high politics and changing technology shape and change how real people live–not only whether they live or die at the hands of thugs-with-guns, but what kind of life they are able to live.

It is a commonplace that each generation writes its own history: each generation is interested in different facets of the past, and a given work of history often tells as much about its own present in which it was written as about the past that it purports to analyze. This commonplace is not completely true. One reason to write history is that it is entertaining: the stories of what people actually did and suffered that historians tell are some of the greatest stories on earth. The twentieth century has more than its share of such narratives.

A second reason for history is simply to gratify curiosity, which may or may not be related to the circumstances of the writer's or the reader's era.

Yet there is a third powerful motive: the search for "lessons" of the past for the present. Today, in the wealthy and industrialized countries of the world, our principal concerns are with the creation and maintenance of liberty and prosperity, and with understanding what our (comparative) liberty and (relative) prosperity has transformed us. Other audiences in other places and other times have had different concerns: how to ensure the triumph of the "true" theology, how to conquer one’s neighbors, or how elites can maintain political power or economic and social dominance.

This history is written from our particular turn-of-the-twenty-first-century viewpoint: it tells the story of the twentieth century as the story of liberty and prosperity–the partial escapes from (and at time and places the falls back down into) servitude and poverty. This particular grand narrative is an interesting one to write because it is of great interest to almost everyone, and because its ending is not clear. There is no logic immanent in history unfolding itself: nothing except our own and our descendants efforts and struggles can make this particular grand narrative have a happy rather than a tragic conclusion.

I think that this is the most interesting take on the history of the twentieth century. Others are free to disagree. And the fact that others are free to disagree, and value that freedom, reinforces my belief that my particular grand narrative is a felicitous one to tell.

One of the glories of the history of the twentieth century is that–although it has an extremely depressing middle–it seems to be moving more toward a (relatively) happy than a tragic ending: this is a (relatively) free and prosperous country, and (compared to the past) a relatively free and prosperous world.